Q3 20/21 TU

Jan 7, 2021

Thank you. Good morning, everyone, and a Happy New Year. And I'd really like to thank you for joining us at short notice this morning to talk about our quarter three trading statement covering the fifteen weeks to January 2. Now I'm joined this morning, of course, by Kevin O'Bernard, CFO. I'm going to give a brief summary first. I'm going to refer to the slides that we sent around this morning and which are available on our website. And then, of course, we'll be happy to take all your questions. So just turning to the slides and to begin with, I think it's worth reflecting, obviously, first, this was another extraordinary and challenging trading period, and we played a really strong role in feeding the nation. If I turn to Slide two, headed to quarter three in Christmas performance. Our stores were well stocked throughout despite some significant supply chain challenges. We continued to grow online delivery capacity, whilst customer satisfaction measures of speed and readiness of service and product availability were the highest we've ever seen at Christmas. Argos again demonstrated the strength of its digital platform with nearly 90% of its sales starting online during peak. All of this was down to the hard work of all of my colleagues. And I would like to say again a huge thank you for all of their tremendous work. It really was an outstanding team effort across every part of the business, given the highly dynamic situation that we saw in the running to Christmas. I and many of the teams spent our time out across the business in the fortnight ahead of Christmas itself and saw firsthand the outstanding job our colleagues did in providing the safest shopping environment possible whilst delivering leading service and availability. I believe we delivered really well for our customers this year, and we learned a lot too about what worked across our offer and also what we can improve further for next year. The result was like for like sales growth of 8.6% for quarter three or nine point three percent over the more recent nine week period since the start of the second English national lockdown. This growth and our expectation that sales growth would remain elevated through the period of the lockdown we have just entered drive the increase in profit expectations that we've announced this morning. I'm now going to turn to Slide three, which shows the retail sales growth by category. So clearly, on this chart, this shows good progress across the board, clearly reflecting a second lockdown in England and the COVID restrictions more widely, but also very strong execution across our digital platforms for groceries, Argos and clothing. We've seen continued recovery of general merchandise and clothing sales in Sainsbury stores with very good seasonal performances from both. We've also referred in today's statement to a strong general merchandise and clothing margin performance, driven in part by a significantly higher proportion of full price sales. So this has been profitable growth to us alongside an August Black Friday strategy, which traded some sales in favor of a more disciplined promotional stance as we previously described at the interims. Turning to Slide four, which specifically focuses on our digital sales. I talked earlier about strong execution across our digital platforms. And you can see here on this slide, digital sales increased by more than 80% over the quarter and accounted for more than 40% of our sales. Argos digital sales increased by 49%, with nearly 90% of the sales starting online, a clear demonstration of Argos' digital capabilities through the peak periods of both Black Friday and Christmas. In grocery, online accounted for 18% of grocery sales, a step on from the 15% we reported for the first half, with 16% of these being click and collects, although noticeable that the click and collects peaked at 24% in the key Christmas week. We worked hard to continue to increase delivery and Click and Collect capacity despite the challenge of bigger Christmas basket sizes, and we saw a good acceleration in the rate of sales growth ahead of Christmas. Turning to Slides five and six, focusing on the grocery sales performance versus the market. Now in November, we committed to report consistently against a set of metrics. And on Slide five, we show one of these. Our grocery market share, where despite tough comparisons and a very disciplined approach to promotions and other trade driving activity, we grew ahead of the market and outperformed some key competitors. That's reflected in Slide six, which shows performance over the core food and drink categories, stripping out some of the noise from beers, wines and spirits promotional activity. On this measure, we outperformed all of our key competitors over the quarter. Now I know the eagle eyed amongst you will have noticed that we're using Kantar value data, where previously we've shown Nielsen volume data. This is simply because we bought our statement clearly forward a week and the Nielsen data covering Christmas itself is not yet available. So turning to Slide seven. As much as it's online that's delivering the big headline growth numbers, more than 80% of our grocery sales still go through our supermarkets. And so I'm really pleased that we have seen some of our strongest ever customer satisfaction scores, a real tribute to the brilliant job our team have done. We encourage customers to shop early to help reduce capacity challenges on peak days with initiatives like our 10x neck to points offer, and we invested in more SmartShop handheld scanners to help deliver great availability and service. SmartShop accounted for nearly 30% of sales in handset stores over the quarter. And customers recognize this with great stores for product availability, speed of checkout and availability of colleagues. But at the same time, we've not yet made much progress on value perceptions, and we could have done better in some other areas such as premium products and innovation. Taste the Difference sales were up more than 11% over the period. And we know that others saw stronger growth in premium owned label, albeit from a smaller base. And we have more to go for in these premium areas as we think about the year ahead. Now turning to Slide eight. This shows that we really stepped up to deliver for customers over Christmas in terms of online capacity. We continue to move the pace, and we'll deliver more than 835,000 online orders this week. We were at 340,000 back in March and 700,000 at the end of quarter two. Turning to Slide nine. We said in November that the profitability of our Groceries Online business had stepped up considerably over the first half, and this has continued given strong productivity metrics. We increased capacity beyond our original estimates, largely from the same fixed asset base despite the challenges of peak trading. I'd also like to highlight the progress in value utilization and items picked per hour, in particular, which is now broadly back at the levels achieved ahead of the pandemic. We showed you the chart on the right of the interims where we were ahead of the path on online customer satisfaction. Updated for quarter three, this suggests that our growth might have, in a couple of areas, come slightly at the expense of customer satisfaction, but we're focused on bedding down our new capacity to deliver a consistently strong customer experience. And then moving to Slide 10, and last but by no means least, I would like to highlight the operational performance at Argos over the key period, with nearly 90% of sales now starting online and huge growth in Click and Collect and home delivery. This represents very strong execution and a real demonstration of the strength of the Argos platform as we transform the business model. So then on Slide 11 turning to the year ahead. We still face a lot of external challenges through COVID, and we're expecting a much tougher consumer backdrop. But a focus on the priorities we set out in November will put us in good shape. On food, we have very strong plans on value and innovation that you will start to see in stores very soon. We're well underway with the ARBUS transformation plan, and the bank is in good shape. Underpinning this, we will need to deliver the significant step up in our cost savings and we are executing at pace. We will provide a full update on progress on our early progress with our preliminary results in April. And then finally on Slide 12, I committed to come back to you every time we speak on our key metrics. This time around, I can say that we delivered really encouraging customer satisfaction stores and a solid grocery market share performance. We're in a strong place relative to the recent guidance on profit and cash, and we will come back to these metrics at the time of our preliminary results in April. I'm encouraged by the progress. And as you would expect, our new top team are fully focused on executing our plans for FY 2022. So thank you for listening, and I'll now ask that we open the call up for your questions. Thank you. Thank Your first question then comes from Andrew Gwynn from Exane BNP Paribas. Please go ahead. Good morning, Andrew. Good morning, team. Yes, morning, and happy New Year, of course. And starting off in style, so congratulations to you and indeed the team for a good quarter. I guess the questions well, they're kind of boilerplate questions really, which I'm sure you anticipate. Profit for next year, I mean, obviously, this year's profit is down substantially year on year, albeit better than implied. So if COVID hangs around, which unfortunately feels like it is going to, what's the right base of profit? Obviously, 30,000,000 versus high 500s. I know you've already given us some guidance on profit for next year, but just wondering on your thoughts if COVID continues to hang around. The second one, unfortunately, some impressive stats there, but obviously, 4% Click and Collect is one that particularly jumps out. I'm just wondering what the lessons are as we go into the next year, particularly, obviously, thinking about the profit journey with online. And connected to that, obviously, your plans for more capacity addition. So maybe I'll ask Kevin maybe to just to comment on as we look ahead, and then I'll come back and talk about online. Kevin? Yes. Andrew, sitting here this morning, we wouldn't expect anybody to be moving forecast for next year. Just to be clear, the upgrade today, obviously, is related to specific circumstances, and let's call them pretty unusual circumstances that we've seen in the last period of time and our view of the remaining weeks in this financial year. We reiterated the at least €586,000,000 for 2021, '20 '20 '2 when we last spoke, and that included the extra drag of €30,000,000 of rates business rates next year. So at the moment, we're focused on closing out this year before we talk in more detail about next year. Still a lot to do to manage the rest of this year, and then we'll talk again when we next speak to you about next year. Just come back on that. Just obviously, if COVID hangs around a bit longer, as it seems to be, should we have it in mind that £580,000,000 could be a little bit lower given some of those COVID costs? It certainly will bring some pluses and minuses, which we'll work through. But at the moment, we have no further update. Okay. Thanks. Sorry, Simon, go ahead. No. Thanks. And just, Andrew, to your questions online. So I mean just sort of two quick recaps and then your questions on looking ahead. I think the sort of headline point here is $340,000,000 in March to around 700,000,000 at the interims to eight thirty five million last week. So our absolute focus here is on opening up the capacity as far as we can to meet the demand, obviously, from customers. As we go into the third lockdown, not surprisingly, we've seen further demand peak this week. Think the Click and Collect point, as you call out, it's an interesting one. We saw Click and Collect really open up in the first lockdown as customers were clearly working from home much more and actually a more convenient way, in many cases, of being able get online groceries when you want to. So what we found, I think, is a continued capacity in our network to open up more order slots using Click and Collect. And the Christmas week, twenty four percent, I think, was a real indication of that. That worked for customers and it worked for the business because it meant we could provide more capacity, we could provide it efficiently and we could, as I say, get up to that 835,000 level. Of course, as you would expect, we're doing lots to look at where else we can grow more capacity. I think it's really clear that the in store pick model, we're really leveraging the fixed assets. Our colleagues are doing a fantastic job at continuing to improve our operations so we improve our productivity. You've seen our update this morning on our orders per van and drop density improvements. So as we said at the interims, we're very focused on the operational improvements, and we'll keep pushing those. Obviously, a third lockdown, social distancing, incredibly important, safety, very important. So I think in the next few weeks, we'll be keeping a very close eye on that. But there'll be plenty of lessons we'll keep learning. But we're very determined and very focused, and the team are doing a fantastic job of opening up capacity and making sure that we use Click and Collect as much as we can. Perfect. Thanks guys. Thanks. Thanks Andrew. Thank you. The next question is from Fabienne Caron from Kepler Cheuvreux. Please go ahead. Yes. Good morning, and Happy New Year from my side as well. Three quick questions. Could you help us and give us an idea of the sales force of the supermarket compared to the convenience stores in Q3 and maybe year to date? The second question on online. When customers decide to go for Click and Collect, is it same day delivery compared to next day delivery for online for home delivery, sorry? And the last question is how did you keep with the increased volume in online for your store pitch model? Did you ask your employees to work at night while the stores were closed? How did you manage this quickly to avoid disturbance in stores for customers going shopping in stores? Okay. Thanks, Fabienne. So I'll maybe ask Kevin just to talk a bit about the sales mix between supermarkets and convenience, and then I'll try to give some more color on the online questions. Morning, Fabienne. The sales profile that we saw in quarter three mirrored what we saw in the first half. Supermarkets that didn't have any grocery online capacity, we saw sales down slightly, although better than in the first half. Supermarkets, clearly, with Argos store in stores with grocery online or the combination of both of them, we saw strong sales growth overall from the box. And as you know, we look at the total economic box, if you like, not the when we're looking at the overall profitability of the unit. Convenience, the performance sales were down in Convenience year on year, better than quarter two, but down. And again, the same profile as we outlined, I think it was in Slide 39 in the H1 update, where the less urban stores were growing, but overall sales were dragged down because London stores, in particular, and city center stores were down materially 15%, sixteen % year on year because of their location and clearly not having the footfall in those locations due to the various lockdowns across the country. And probably one other thing to add just on the convenience. We opened five in the period, two of our new neighborhood store model, and we're really pleased with how they've performed over the Christmas period. Yes. Thanks, Kevin. And then on to the online question. So I think on I mean, sort of two dimensions of Click and Collect, just to make sure we cover both angles. So on the grocery business, clearly, customers can make a choice to Click and Collect in their store. So following the same pattern of either picking home delivery or Click and Collect. And as we say, more customers traded into that into the Christmas week. And we'll continue to make sure that the option of click and collect is as aware for as many customers as possible. I think shouldn't underestimate also the Argos business on what happens on click and collect. Of course, we've got a four hour fast track collection promise. Click and Collect in Argos, very strong through the quarter, 300,000 Fast Track deliveries we did as well. And actually, just as we're talking about Fast Track in Argos, over the Black Friday weekend, obviously, as you remember, we guided to at the interims, we had a slightly different promotional approach with more discipline about the number of promotions we did on Black Friday, but we really focused on speed and convenience. And we saw Fast Track collection and Fast Track delivery really perform. In fact, the fastest fast track delivery over the Black Friday weekend, the team shared with me was fifty seven minutes. So four hours is the promise. That's the best we got to. And so therefore, click and collect both in the Sainsbury's channel and in the Argos channel is something we really want to drive. So it's really convenient for customers. On your question about picking of online, what we're doing to balance the challenges of social distancing and disruption for customers and making sure we can both serve our customers in store and online well. A few things we've done. We've increased the picking window. So just again, honoring the fantastic job our online colleagues have been doing. We start picking now at two in the morning rather than four which opens up the window to get more of the pick done before we get into the trading day. We've increased the delivery window time later into the evening. We've introduced more flavor slots so customers can pick slots where there's capacity available at a better value price on the delivery slot. We're doing all sorts of things to fully optimize the window. And of course, as we put more volume through the home and delivery channels, so the improvements in reducing the stem mileage and increasing the drop density is important because we're traveling less distance and therefore we can get to more orders more quickly. So just a whole focus in that area about making sure the store experience is balanced between online and home delivery and making sure, as I say, we continue to drive the best service and the best efficiency we can. Okay. Just to make sure I understand of Click Collect for grocery, can I get the the order in four hours for Click and Collect for grocery, or is it next day? It's it's next day. It's for next It's always next day. Okay. Okay. Thank you. Thank you. The next question then is from Shreedhar Mahamkali from UBS. Please go ahead. Hi. Good morning, and happy New Year. Three questions from me as well, please. Firstly, on online, some of the key drivers very helpful in the slides. Couple of questions there. Firstly, on pick rate, how much further can you drive those now that they're pretty much back to pre COVID levels? That's the first one. And second one, can you give us a sense of what's also been happening to the average delivery fee, please? Particularly in the context of what I see is, like, £1 slots, which are quite likely well below the cost. And the last one is August growth. I know you called out a couple of categories. I'm just trying to understand how broad based the growth was, contribution from gaming and any other key areas that would be super helpful. Thank you. Thanks, Frederic. So let me try and just give you as much sense on the questions on online and then we'll pick up Argos. So I think on pick rate, just to cover the history and then where we are now. So as you've seen on Slide nine, and we talked about this at the interims, we've seen progressive improvements, double digit improvements in item pick rate over the last three years. And so the challenge, absolutely, as you say, was to conscious of all the social distancing impacts and the operational challenges to get back to that level. And that's where the team has got to. So I think sort of first point is to hold the level of item pick rate at where we were before COVID. And that's broadly what we're back to now. I think, obviously, we're into a third lockdown. And so that will necessarily and absolutely brings an absolute focus on safety. And so in this immediate period, I think our objective is to make sure we provide as much capacity for customers. We're prioritizing elderly, disabled and vulnerable customers again. And we do that at the level of pick rate we're now achieving. We're through the Christmas peak period. That helps a little bit. Of course, there's less customers in store. And so there's a balance between the impact of the lockdown, making it a little more challenging versus the fact we can get around the store a bit quicker at this time than we could in the December. And so I think we're very focused on the pick rate. We're very focused on the online metrics of pick rates, drop density, average baskets and the Click and Collect participation. And you'll see us continue to focus on those and we'll update clearly at the April and the further progress we make through the period. In terms of delivery fees, we know we use dynamic slot pricing. We can constantly look at how do we optimize how we fill our slots, but also how we do them economically in the best way, and we continue to do that. And I'm sure as we come through the Christmas review, we'll continue to take lessons from that. One thing that I think is very clear that the online demand continues to grow. And the fact that we've gone from 700,000 in November to eight thirty last week just shows the size of the opportunity that's there. And that's why we're very focused on both the service and the operational efficiency. One point I should have made just to Fabian's earlier question and links to your question on Line two is, of course, we have continued same day service at Chop Shop really, really pick up. That's been a really positive feature of our performance on the Chop Shop platform where you can order for fast delivery. And obviously, we've been using delivery platforms to help with that. And we've seen some of the stores, actually a lot of the convenience stores that are the fulfillment basis of ChopChop. You'll see some really strong sales coming through. So just to give the other angle on ChopChop and how that's working. And then on Argos, let's give a bit of sense of how the Argos business has done and some of the key factors. Kevin, maybe you want to comment on of course. Yes. In Argos, it's the sort of I think I have five big categories that are very important during this particular quarter: TVs, very important gaming, very important furniture, very important toys, not surprising. And then if you put Domestic Appliances, medium sort of MDAs and SDAs, the small and large Domestic Appliances together, those five are broadly sort of similar size. In the particular quarter, Gaming was a little bit bigger but not much than those categories. If then we talk about the growth, where is the growth coming from, TV is actually the largest growth in the period. Gaming and Furniture, similar growth year on year. And then MDA, the larger domestic appliances, would be sort of third. Toys didn't grow because of the trading stance we took on toys and particularly combined with Black Friday and coming into Christmas, focusing on managing the margin. And Sports Equipment grew. It's not one of the biggest categories, but that grew strongly as well. So hopefully, that gives you some color. Thanks, Kevin. Just sorry, was just going say just one other point before we finish off on August, just on the online question. Just going back to the detail again, one of the things just on that dynamic slot pricing, actually, we're very confident as we fill the capacity by getting slot pricing right across the grid that it's profit accretive. So that dynamic model is something that we continue to improve but continues to drive the economics of the online slot capacity fulfillment. And that helps, for example, things like the van utilization, which you see up 56% because so clearly, on the one hand, it doesn't look like a profitable delivery price, but it clearly helps the whole economics of the model. So can I just quickly come back to the pick rate? I recognize your point about COVID and social distancing. But structurally, all things being equal, so year out, two year out, sort of medium term point, do you see much room for improving pick rates further? Or do you now need to think about automating some of it? Yes. I think I would just reiterate what we said in early November, which is the store pick model has absolutely proven the capacity it has to go from, as I say, three forty million to eight thirty five million And that's happened through this period despite significant operational limitations in the lockdowns. And as you'd expect me to say, prioritizing safety is first and foremost absolutely front in mind. And so as we go into another lockdown, that's one of the things that I think in these next few weeks will mean that we're not going to see immediate further improvement. But I think beyond that, as we come through that period, just as we've done through the last six, nine months, you've seen how much it's improved. Given the initial impact on Slide how far it dropped back in the first lockdown, how much that improved for the summer. We'll get through this third lockdown. Then we think there's more to go at, and there definitely is more to go at. And we think there's more to go at fully optimizing the store model. As I said in November, we continue to look at other technologies. But right here and now, the way in which we're leveraging the asset base that we have by driving that degree of volume and improving the online metrics and sitting route to do more of that is where we are. And as opportunities of new technology comes forward, we'll keep looking at it. But we think there's more to go at once we get to this initial further lockdown, Trudeau. Thank you so much. Thank you. The next question is from James Grzynich from Jefferies International. Please go ahead. Happy New Year to I had two or three very quick ones. The first one is, can you perhaps confirm what assumption you're taking in terms of COVID costs for the second half that underpin that new guidance for profit? I think you've spoken to GBP $290,000,000 in half one. That'd be interesting. And then Simon, just to follow-up on Frieda's points. Can you perhaps confirm what the average delivery fee is now for grocery online? And just whether you think that you can start widening the gap relative to Click and Collect? And can you perhaps also confirm whether the where the average basket size sits for Click and Collect versus delivered for Food Online? Okay. Let's maybe try and give just some specifics on the cost, and I'll reiterate some of what we talked about early in November. So you remember when we talked about the cost in the first half, we talked about shielding and isolating colleagues was around £70,000,000 safety and social distancing around £110,000,000 And I think broadly as we guided to in November, of course, those costs continue to be very present in the business. As we go into third lockdown, we are seeing absence rates increase. And within the obviously, the guidance that we've given you today, we've taken account of the fact that we expect further absence than we would have seen a few weeks ago. So we factored that into our guidance, particularly absence levels themselves and of course, the cost of shielding for extremely vulnerable colleagues, too. That's in our retail operations and of course, in our logistics operations as well. So we factored into that a step up in absence. We're around 8% at this point in time. The last few days, we've seen a step up, and we clearly expect that to continue. We've got obviously a lot of colleagues in our business, given the amount of recruitment we've done at this time of year, we're coming off the Christmas peak. And so we're factoring in the cost of absence and making sure we've got all the colleagues we need to provide the really safe shopping environment for our customers, great availability and online as well. So that's really how we're thinking about the costs in terms of James, just one other point, Billings. We'll update at the year end the real detail on this because clearly, we just finished the trading period on Saturday. So we'll come back with more detail when we do the full year numbers for you. Yes. And then I think then I think on your question I'm going to follow-up on that. Are you basically assuming that the social distancing and shielding rules that currently apply will continue to apply for the rest of your financial year? Yes, we are. And I think that we've been really consistent on that throughout. And actually, for all the reasons you would expect me to say, as we've come out of Christmas, we've reset again, making sure that for all of our customers, in terms of what we're asking our customers to do when they shop with us, that everyone wears a mask, that we're back to ensuring that two meter social distancing absolutely is in place. And doing absolutely everything we need to do to make sure our colleagues feel as supported as possible. It's an anxious time, isn't it? And I think safety is front and center in the way we are making sure we're set up. So we're expecting the all of operational approach that we have to continue certainly for the balance of this year for all the obvious reasons, yes. Thank you. On your questions on relatively different prices, I guess, not I don't really have a lot more specifics to share on that today. And I think we've tried to give you as much color as the way we're thinking about item pick rate, way we're thinking about drop density. As I say, the dynamic slot pricing and the way we do that, it's profit accretive and the way we optimize it. And so we'll continue to give as much color as we can on the online piece. And when we come back at the prelims, we'll talk more about how that's embedded down post Christmas. So that's probably about as much as I can say on this point. And James, there's no big noticeable difference between a basket and Click and Collect in a basket and home delivery. That's not what drives the it's just what's convenient for the customer and what's available. So the basket sizes are similar. Thank you. The next question then is from Andrew Porteous from HSBC. Please go ahead. Hi, Andrew. Hi, good morning, guys, and happy New Year to you all. Three from me, if I may do. Could you just give us an idea in terms of the sort of 60,000,000 upgrade today, the relative importance and sort of which part Which part of Yes. Sorry. Someone called me at the same time. So which parts of the business have done the heavy lifting in terms of Argos versus stores versus clothing? The second question, could you give us an idea if there's any sort of moving or anything to sort of consider from a cash perspective this year, given the stronger performance and the better profit outlook? And then lastly, a quick one on online. Could you remind us how many stores you do home delivery from and how many you offer Click and Collect from? Thank you. So let me try and give you some sense on the first of all, into the key drivers of the change in guidance. And I think as you would expect, primary and most significant one has been clearly, as we come through the second lockdown and the change in the tiering situation before Christmas, that's driven more demand on the grocery business. And so we've seen as more customers have clearly needed to buy groceries to be at home, to work at home, Christmas arrangements have changed. We've seen that drive more demand on the grocery side. Obviously, we planned a good sense of that, but it's been ahead of what we expected. That's been, by far and away, the biggest factor. Obviously, the arrangement changes just before Christmas and on the December 19 caused millions of families to have to re appraise their Christmas plans. And so we saw, particularly in the five days before Christmas, the impact of that, the December 21 was the biggest day. Never seen that before. It was a real shift in the Christmas trading pattern. And so we saw both grocery overall drive performance ahead of what we forecasted. We also saw our stores in London and the Southeast before Christmas over indexed given the impact of the Tier four arrangements. Obviously, lockdown three this week. We've seen some uptick in demand, not surprisingly. Again, as customers need to buy in for the lockdown when we factor that into our guidance. Of course, we have prepared for a worst case Brexit. And so obviously, as the good news of that situation changed, we've been able to factor in the contingency that we had assumed for that. So on the food side, I would say that demand, the Southeast impact post Tier four and the impact of the lockdown are the sort of key components, the Brexit contingency. Then the other factor I would put out is that we've talked all the way through about the Argos business. And we were working on the premise that some of the sales would have been pulled forward. In the end, the Argos business continues to do, as you've seen, really well through the Christmas period. And so that was another key factor in what we've been able to announce today. Then on the cost side, I'll ask Kevin a minute just on the cash. But clearly, we've had better full price sales across general merchandise and clothing. A lot the seasonal products just sold through very cleanly. I mean just an example of that now in our stores for Christmas products like Christmas decorations, Christmas trees, all of those products just sold through ahead of Christmas, and we were left with no stock afterwards, and that applied in a lot of the seasonal areas. And as I've described, the online efficiency continues to improve and it's an area that continues to help the cost position. So that would be the overall picture in terms of the key factors that have driven it. Grocery first, Argos demand, the impact of the tiering across the board and then the Brexit situation. On the store split between delivery and Click and Collect, we offer Click and Collect in three thirty of our stores now, and we pick from two sixty eight of our supermarkets. And Andrew, just picking up your cash point. We're in a good position on cash and working capital. Clearly, it's a trading update today, so we don't have all the detail, but we finished the trading period with a clean stockpile, which is always good. And as we said at the interims, we expected a lot of the working capital benefits on the first half to unwind. Some of it always does unwind because we're building up stock for Christmas, but particularly as we rebuild the general merchandise stock where we've had very strong sell through at Argos. And we'd expect that some of that will still happen because we will rebuild some of that stock. It will just depend a little bit on the trading patterns, but we expect to be in a good position from a working capital position and from a cash position at year end. Brilliant. That's really helpful. Just could I get one quick follow-up on the Click and Collect side of things? You're probably a bit more constrained by the $3.30 than the home delivery is in terms of customer demand because I guess you're effectively asking customers to do the longer stem. Does the increased popularity of Click and Collect change your thoughts over how many stores you pick it from? Yes. Mean, think I mean, just to kind of go back to what's happened this year, obviously, we've added a very substantial number of new Click and Collect locations this year and clearly not just in stores we pick from, but also stores where we don't pick and we're offering Click and Collect. So for example, my local store in York in Monks Cross, we don't pick in that store, but we now offer Click and Collect. And that's been really well received by customers. And there are clearly a high number of stores that are in that operational circumstance. So I think two things are driving us here. The first thing is we clearly add more pick stores as the capacity has happened, but that's been a relatively few number of locations. We had about 15 extra locations to pick in this year. And that gives us one more capacity, but also balances the volume of product going out the back of the door versus out the front of the store so that the customer experience is maintained. And we'll continue to look at more locations we can have Click and Collect to your point for obvious reasons. If it works for customers and it works for us, it's absolutely right that we get to as many locations with Click and Collect as we can. So I think we'll evaluate the Christmas picture as we get further into reviewing what's happened over the last four or five weeks. We're pleased with how Click and Collectors performed and we see opportunities to continue to grow it. Thank you. The next question then comes from Clive Black from Shaw Capital. Please go ahead. Hi, Clive. Good morning. Good morning, Good morning, gentlemen. Good morning, Simon. Happy New Year to you. Very well done. Couple of questions then. The first one is quite particular, but is it you mentioned Brexit there for the first time, which is very refreshing not to have to overtalk about it, Simon. But is the situation in Northern Ireland one that's concerning you? And could it be notably costly in your Q4? And secondly, I guess more for Kevin, but noting what you said about being ahead on profit expectations, I would imagine very strong negative working capital. Kevin, do you think there's scope to actually bring forward your deferral of debt reduction targets, which you set set out to 2023 when we talk to you in May. Thanks, Clive. Okay. Let me let me give you a sense of how we're thinking about Northern Ireland, and then and then I'll pass to Kevin. So when I think, as you say, I mean, the the the key thing here is clearly how pleased to be all of it, a deal was reached before the end of the year. Because whilst we have clearly contingency plans in place for a no deal, clearly, the disruption that would have caused would have a whole different situation. So the first thing to say is that flow of goods into Northern Ireland seven days into this, it's broadly going as we needed to. We've got products available for customers. We plan really closely with our suppliers over a very long period of time. We've made robust plans and there's been minimal disruption to supply so far. There's been individual small examples, but in the grand scheme of this level of change that we've seen happen, Clive. If I look from a customer point of view in the 13 stores in Northern Ireland today, the vast majority of our products are there. And we're working through making sure that some of the issues we need to work on in the next three and six months, obviously, we've got to work through export health certificates through the grace period. We've got to work through the prohibited and restricted items in the next three months. So those things are all in front of us still to do. There's bureaucracy clearly associated with that, but we're working with all the right parties in the right way actually across the industry to face into it. So look, it's early days. The most important thing is customers in Northern Ireland could get the products they should expect, and that's where we are. We put some contingencies in place to make sure that products were available in the event of a no deal. And so we'll continue to review that, and we're very close to making sure that the right conversations are happening because as you say, we can't afford to put any cost into the operation at this time, and we'll be working really hard to make sure that's not the case. Kevin? Yes, Clyde. Yes. There's a few moving parts here, Clyde. Clearly, the reality is we do have to repay the £440,000,000 of rates that was in our original thinking. So that's obviously going to drag on the debt repayment. We will see a benefit from the increased profits. You're absolutely right. So that's €110,000,000 that we should see, which should eat into it. On the working capital, it's just a bit soon to say where that's going to we clearly have targets, and we'd like to hold some of that working capital benefit, but most of it will unwind. So better if I update you at the year end when we fully analyze the numbers, but the profit number will definitely flow through. Okay. And then Simon, just more broadly on Brexit. There's a lot of noise and uncertainty around country of origin of products coming into The U. K. And various ingredients that are utilized from Europe and then manufactured in The U. K. Is that something that is also worrying you and worrying the industry? Yes. No, thanks, Clive. I mean, I think as you say, I mean, some of these factors have clearly become clearer since we've seen the detail of the agreement. And particularly, as you say, products and the origin of where they're processed is one of the things that we're working through. So if I was to describe at the headline level, we've got to iron out some of the remaining issues around the Northern Ireland issues, as we've just talked about. And of course, we've got to work through on particularly the issue that you talked about, and we've got the right conversations happening across the industry to make sure that we can solve the issue. There will be changes we'll need to make as a result. We haven't got to all of those answers yet. Our priority right now has been stock availability for customers. But over the next two, three months, these issues about where we're bringing products in from, what the impact of that is and how do we reset that where we need to is going to be a key priority for us to work on. I should just lastly say that for our teams in Supply Chain Logistics, particularly in technology and in the trading functions, it's been an incredibly busy time right up until the new year. These issues were being worked up right up until the last few hours prior to the thirty first. And so having got that in place for customers, we now need to turn our attention to the issues that you're talking about, and we will be. Yes. I think that was Michael Gould's plan all along, wasn't it? Not have enough time to work out anything. But anyhow, well done on your trading statement, and all the best for the future. Thanks, Clive. Good to speak this morning. Thank you. Thank you. The next question then is from Xavier LeMene from Bank of America. Two, if I may. Just on the growth rate performance, can you give us a bit of color on volumes, mix and inflation potentially on what you see in Q3 and potentially what you're expecting heading into 2021? And second, you sounded a bit disappointed with the price perception improvement. So may I ask why you think it's not improving as fast as you think? And potentially, what is the plan to improve that going forward? Yes. Thank you. Well, let me try and give some sense on both, and I'm sure Kevin might want to comment on the first point as well. But I think just in terms of the overall position that we've seen, I think, obviously, we've been very focused on value for customers throughout the quarter. And you'll remember at the interims in November, I laid out action we've been taking, particularly in our fresh food business, particularly in areas like meat, fish and poultry and across our wider fresh food categories to bring better value to customers. And so we've been very focused on just continuing that strategy through the course, and we've seen the benefit in volumes as we particularly focused on improving value at the center of the plate. And we'll therefore have been significantly seeing the benefits of that in value perception in those areas. But value perception takes time to change, doesn't it? And so my comments on perception of value weren't disappointing. They were more just reflecting the fact that we've just begun a strategy to put food first. And we're very focused on improving the price perception of our customers, and we'll continue to do that, not least evidenced by the price lock we've just announced last Saturday with 2,005 everyday products on it. More broadly, in terms of the pricing environment, I think, clearly, sort of two things to say here. I mean we didn't take part as extensively in some of the promotional activity in areas like beers, wines and spirits. And you can see the impact of that in the data I've shared on our relative value growth this morning. We did use other mechanics to give customers value. For example, the 10x net to points that we use to encourage customers to shop early, we think was a really important and successful way in which we encourage safer shopping, bringing the capacity earlier, but also giving customers value through Nectar for doing that. So we're very focused on value. We think broadly that the market will have been less inflationary in quarter three than in quarter one and two. We're bringing more value to customers. And you'll see us continue to do that because to your key point, our strategy is to improve price perception. And we're organizing all of our activity to make sure that we progressively continue to do that. I mean one thing I'd add on the inflation point, it is just hard to read at the moment. There's lot of noise and changing in consumer shopping habits. So for example, smaller turkeys for bigger turkeys. And where we saw in your mix question, we saw growth in both own brand and brand, but we saw a mix into premium with stronger growth, for example, in Taste the Difference than in some of our less premium brands. And we saw strong growth in things like premium champagne, etcetera, so people want to treat themselves. That will have effect on some of the inflation numbers you see because obviously, the average selling price goes up. But if you like, it's good inflation, not bad inflation. But overall, the trend, as Simon said, is we're seeing both in the industry and in our business lower inflation in quarter three than in the earlier quarters. On the volume question in more detail, we'll get Nielsen volume detail later today. We don't have that, which obviously we'll then analyze and get what we can from that understanding. Thank you. Thanks. Thank you. The next question is from Rob Joyce from Goldman Sachs. Please go ahead. Good morning, Rob. Good morning. Happy New Year to you all. Thanks a lot. Three three from me. So first one, it's been an extension of an earlier question, but if we look at the full year, I think if we x out the bank and fuel, we're looking at retail profits up somewhere in the region of $200 to $300,000,000 underlying. Are you able to give us the split of that between, grocery and the, the nonfood channels? That's the first one. Second one is just on online. Thanks then for all that detail. If we put it all together, are you able to give us an idea of what the, cost to serve has fallen by in totality, you know, in terms of pounds per basket maybe or in terms of percentage on that basket? And then the third one is just looking to the future now, given the shift to online, but obviously, you've made improvements there. Do you think in a normalized, growth environment, Sainsbury's is a fundamentally more profitable or less profitable business in terms of margin than it was prior to COVID? Rob, thank you. So I want to try and give as much as I can, but on a couple of your questions, we won't be able to go a lot further than we said. I mean, I think on the guidance, as you say, we don't split out between grocery and each of the product channels. So I can't give you any more on that, I'm afraid. Kevin? Yes. No, I'm sorry, Rob. And it is a trading update as well. So and we finished trading on the second. Yes. So we don't share that level of detail, and we'll come back at year end with a bit more color for you. And just on the online profitability point. In the first half, we saw sort of total cost per order down somewhere between 89%. So we'll have seen an improvement on that. We don't have all the full analysis done. And again, we can update on that at the year end, but we're that would have improved a bit over the period. Yes. And then I guess to your third question, Rob, I mean, looking ahead, of course, you'll remember the comments we made in November in terms of the strategy, which very much is about as we put food first in our priorities, and we really focus on delivering a return in each of our brands and we accelerate our cost saving plans. We're confident we can see through once we get through this COVID period, the priorities that we described back in November. And we're confident we bring a greater focus on food as we invest in the price perception that we've already talked about this morning. That will drive an increase in our primary customer base and therefore, our ability to drive trade up. One of the comments I would just pull out from the Christmas period, again, it's really clear that customers have had a propensity against trade up this Christmas. And to a large extent, we've satisfied that, but we see opportunities to go further with that. And of course, as we get into the detailed review of Christmas, we'll be looking at where else we can take the trade up opportunity in some of the premium tier ranges as we grow the primary customer base. I think, clearly, the shift online, as you say, hugely significant. Who'd have thought back in March that we'd be here today talking about a 9% on 20% of our grocery volume going through online now. As we described to the court this morning, we're very focused on capacity, and we're very focused on the operational metrics to drive the efficiency of the online model. And that the prelims will give us much of a sense as we can of how much further that's moved and how we see it evolving as we go forward. I think we talked in November about the economics of the box overall and our plans on safe to invest are very focused on how do we deliver the most efficient online operations. But also, as the demand curve changes between online and store, how do we find efficiencies in the rest of the store as well. So I think plenty for us to go at, but I think the priorities we've laid out, these three core priorities will give us a lot to deliver in the next twelve months and giving us a really strong start point in terms of delivering against the commitments we've made. Thank you. Really helpful. Just quickly, Kevin, on that eight to 9%, does that include the shift to Click and Collect? That's a blended number, yes? It's a blended number, exactly. Thank you very much. Appreciate it. Thanks, Rob. Thank you. The next question then, it comes from the line of Nick Coulter from Citi. Please go ahead. Good morning, Nick. Good morning. Happy New Year to you all. Thank you. Two very quick ones, mindful of time. Firstly, could I ask for your sense of how much unfulfilled demand there is for your online offer at the moment and whether you think perhaps penetration has broadly peaked for now having gone through Christmas. So that would be the first one. Then the second one would be just around if I could check on the timing of the MFP investment that went in. From the data, it looks like you saw a very quick volume response to that investment. Yes. Thank you. Yes, I think on the demand picture, I mean, I think sort of a couple of things to say there. Clearly, we've gone $3,740,000,008 40,000,000 last week. There's still demand to fulfill. I think when you look at industry predictions post COVID, I think sort of the broad view is somewhere in the mid teens. We're planning to be closer to where we are now than that. And of course, there'll always be certain parts of The U. K. Where we need to add more capacity. There'll be other places where we can use what we have available still. So we'll keep looking at where we need to add more in. The focus for us here is on the profitability of the online operation and delivering for customers as we come through this third lockdown, which inevitably creates a bit more of a spike. I think things will settle down a bit after that. And then as we come through COVID, let's all hope by later in the year, we'll get to a clear picture of what the kind of watermark is at that point in time. So we're at eighteen percent for this quarter. That's grown for the quarter. I'd expect us to be closer to that than the industry predictions overall. And Nick, the only other point to add is the great thing is we've got the flexibility with very limited capital expenditure to flex up and down depending where customers go. Yes. And then on the Sorry, you expect the broad proportion of the doubling effectively to stick is what you're saying? Yes. I mean, I think as I say, I think industry prediction is 15%, sixteen %. We're at 18% and growing. I'd expect to be closer to 18% than 15%. On MFP, so what do we do here just to reiterate? So back in the September, we began the work, which really focused on how do we win the center of the plate. That was the core strategic objective that we began to answer. And we invested in price around 300 products in meat, fish and poultry, as you say. And as you say, we saw a volume increase as a result. We saw a double digit volume increase, which pretty much has sustained as a result of that. And what we've done this week Is that November, though, that you put in the investment? I'm just trying to clarify the timing of the investment. We did the investment at the back of September, and we first reported on it in November. Okay. So it took a few weeks to work through them, essentially, but you saw a very strong volume response. We saw a strong volume response. And just going back to the detail that we shared with you, if it's helpful, in November. What we did was effectively, we focused on meat, fish and poultry, and we focused on what we were doing in terms of those core products that really formed customer perception of what we were doing on price. And what happened was we dropped 300 products actually first week in October, and we saw a volume uplift across meat, fish and poultry between pre and post investment of 11%. In some of the key products, for example, mince and 5% fat, we saw just under a 30% growth in the volume, big pack chicken bullets, 10%. So these really key and high volume lines, we've seen the volume shift significantly as a result of what we've done there. And then this week, as I say, we've just launched our price lock campaign from the January 2, '2 thousand '5 hundred everyday products in that price lock. And again, meat, fish and poultry an important part of that. And we're very focused on this center of the plate point, how do we convert to more primary customers and how do we use the work we're doing in this area to support that. Thank you very much. It certainly seems to have had the desired impact on your switching. Thank you. Thanks. Thank you. The next question is from Maria Laura Adunno from Morgan Stanley. Please go ahead. Good morning, Maria. Good morning. Happy New Year to everyone. Most of my questions have been answered. Just one very quick question. Perhaps if you could comment on levels of absentees and where they stand and where you are in terms of potentially having to hire new people? Any comments would be extremely helpful. Thank you very much. Yes. Thank you. So just I mean, to reiterate where we are on absence, we're around 8%. We've seen, not surprisingly, absence increase over recent days for all the obvious reasons. And of course, we're paying a lot of attention to absence both in for our retail operations in stores and online and also in logistics as well. As you'd expect, given the third lockdown this week, we've put in place all of the support for our colleagues who need to shield or for our extremely clinically vulnerable colleagues. So all of that is in place, and that's factored into the financial assessment we've made of our costs in the balance of the year and in the guidance that we've given today. In terms of the resourcing in the business, the other side of your question really, which is how do we make sure that we've got enough people to look after our customers. 172,000 colleagues are in Sainsbury's in the Sainsbury's business, Sainsbury's Group business at the moment. We've hired significantly more colleagues year on year. And we expect to exit this year with more colleagues in our business than we began the year for obvious reasons. A lot of colleagues are supporting the online operation. And so as we come out Christmas, clearly, the impact of the third lockdown, clearly, impact of the increased demand in grocery and Argos, clearly, the step up in online operations is making absolutely critical. And the team are doing a brilliant job, just really focused making sure we've got all the people we need to serve our customers and making sure, obviously, we're supporting our colleagues that need, as I say, to shield. So that's where we are on it. And I think focus is all about delivering for our customers through what's going to be a very challenging few weeks ahead for all the obvious reasons. You. The next question then comes from Tom Davies from Berenberg. Please go ahead. Good morning, Tom. Good morning. Happy New Year. Just three questions from me. Given you guys look at the whole box, like the sales densities of the whole box, in a normalized environment, given online will be less cash profitable than in store sale, what kind of incremental sales densities of the store do you need to achieve in order for that store to continue growing its absolute cash profitability? And secondly, in terms of switching gains, who are you seeing the gains most from? Is it the discounters? Is it ASDA? And then thirdly, in terms of the Argos restructuring, what's the time frame for this restructuring the model, closing the stores? And do you envisage any potential execution risks or supply chain issues when you change at all? Thanks. Thanks, Tom. Maybe I'll maybe pass to Kevin for the first one, and I'll try and give some commentary on the August and on the Tom, you probably won't be surprised. I'm not answering able to answer that question in detail, we wouldn't propose a trading update to answer it. But we will come back and talk more about the box economics because I know how important it is for you, and it's obviously something we spend a lot of time looking at. But that level of detail, we probably well, we're certainly not sharing today, and we need to consider just from a confidentiality and competitive point of view how much we share. But I mean we did say in the first half, we had stores that had an Argos store in store, grocery online and walk in customers grew their sales by 18%, whereas grocery online on its own with walk in customers grew their sales by 11%. And if you had an Argos store in store, no grocery online and walk in customers, we grew by 8%. So you can kind of see that as we put more offer into the store, we grow the sales very materially. That clearly increases the margin pool against a fixed cost base. And then we've got lots of work working on the various variable costs. And Simon has talked about the online levers, etcetera. So it's a big focus for us and something we'll come and talk about in more detail in future sort of sessions. Thanks, Kevin. And then on the two other questions, I think just obviously in terms of the switching, we'll see the volume data when that comes through. I think the theme as we've seen through COVID, we've seen obviously many customers have been choosing to shop in larger supermarkets than discounters certainly through the lockdown. And I think that theme has continued borne out of the latest data that we've seen, obviously, different performances for the different discounters. But I think the sort of key thing there that we have seen, obviously, growth and we've grown market share in food through this period. And inevitably, some of the action we've been taking in areas like meat, fish and poultry, we think, has been important in terms of beginning to address value perception and winning those baskets. We'll look at the data, obviously, when it comes through for the Christmas period itself. But on the way in to mid December, which is the last reported period, that was certainly the picture we were seeing in terms of the switching. I think in terms of Argos, just to reiterate what we laid out in November. So we're beginning a three year transformation program in Argos, which will see us clearly close the vast majority of the stand alone stores, open more Argos store in stores inside Sainsbury supermarkets and collection points, both in supermarkets and in convenience stores. We're well on with the program. We're planning this for the first year. Clearly, it's predicated on getting the local fulfillment center network up and running, and we're planning the first phases of that. The point I would just want to make and acknowledge is the fantastic job our colleagues in Argos have done through this period. We announced these significant changes at the November. And the way in which the Argos team have led and delivered Black Friday this Christmas has been absolutely outstanding. And so we're on with planning the changes. Obviously, we're very focused on the demand in ARBUS at the moment and making sure that we support our colleagues and look to redeploy as many of our colleagues as we can as we begin to deliver the transformation plans that we've talked about. I think we've got three of the LFCs up and running already. And of course, we'll be balancing closely, making sure we're delivering customer availability, strong customer offer in Argos at the same time as delivering the changes that we've begun. Brilliant. Thanks. Thank you. Thanks, Tom. Thank you. The next question is from James Anstead from Barclays. Please go ahead. Hello, James. Morning. Happy New Year. Two quick Firstly, you mentioned you were very pleased with this 10x net to point scheme to smooth demand in that week up to Is that a mechanism you could imagine using more widely smooth demand? Or is it really only the kind of extreme volumes around Christmas when that's likely to come into play? And then a question just for Kevin as well probably. The one number that perhaps caught me cold this morning was the kind of the jump in the net news based contribution to be quite noticeably negative this quarter, which I guess is the fact you've currently closed quite a few of these Argos stores, yes, from November. Is a 2% hit per quarter a sensible source of assumption for quite some time to come now, given you're planning to shut most of the Argos estate? Or yes, might it even get a bit higher for some time? Shall I just pick that one up? James, you're right. The 1.8%, it's 148 stores, which we treated as open up until quarter two, albeit they weren't trading, but they haven't officially closed. We treated them as closed, and that's what's driving that difference that you see as you go from quarter one, quarter '2 into quarter three. We'll need to come back and give you a bit more help. I don't have I wouldn't want to give you guidance now that we haven't checked, but we'll come back and help you plan for as we do the store closures as we finalize those plans over the next period of time, if that's okay. James and I will help you with that. Yes. I suppose just one quick follow-up then. You've treated them as essentially closed from the start of the third quarter rather than middle of vessel date, right? So it's okay. Yes, that's helpful to clarify that at least. But yes, that's helpful. Thanks, Kevin. And then just coming back to your question on Tenth Armes. And I think just the genesis of this was really all about the planning phase of Christmas, James, how could we manage what was a very uncertain set of challenges around capacity in supermarkets and very thoughtful about the impact of social distancing. So the team did a really great job looking at different approaches we could take to bring forward some of the demand, particularly in those areas of the product base grocery and ambient products where that was going to work. And so this was driven out of an objective of safety and smoothing the customer demand curve and the reason that we did it. And as you say, look, as part of our review of Christmas, we'll have a really good look at how it's worked. I mean, we're pleased with it. Customer feedback has been good. It's enabled us to pull forward sales in these areas, which has opened up the capacity to be able to put more of the perishable product the pipe just prior to Christmas. So I think it served a number of objectives. Safety, first and foremost balancing the customer flow into stores, which was something that was very much on our mind when we couldn't anticipate how the peak four or five days to Christmas would be. Clearly, Netzer to reward customers for shopping early and enabling us as we look ahead to find ways of further optimizing the peak days before Christmas. So they were the factors that went into it. And yes, our early assessment of it has been successful. We'll do the full wash up on it and look for further applications from that. Very helpful. Thank you. Thanks, James. Thank you. That completes the queue of questions. I'll pass back to Simon for closing remarks. Thank you. Well, just to thank everyone this morning for joining us at short notice, very conscious that we pulled our update forward today. So thank you for your time. Thank you for all questions. And I hope we've been able to answer them as fully as we can. Just to finish by saying, obviously, a huge thank you again to all of our colleagues for the fantastic job they've done and to our suppliers, to actually our suppliers have worked incredibly hard to support what's been a very challenging period. So a big call out to them. Thank you to you for your questions this morning. And to say, of course, we'll talk again at the April for our preliminary results. We're very focused on our strategy, our three core priorities, which we'll update you more on then in terms of progress. And thanks for joining today. Stay safe and talk soon. Thanks, everyone.